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Trends in Global Trade

Economics (Year 12) - Global Interdependence

Christian Bien

Growth in Trade

From these graphs, we can conclude that growth in the merchandise trade began to pick up during the 2000s. This was mainly evident as the world gradually removed protectionist policies after the wars, more notably the cold war. Trade was encouraged as a way to increase economic prosperity as well as develop political ties and peaceful outcomes between countries.In addition, new technologies, such as the internet, made it easier to communicate and link overseas buyers and sellers. 

Growth in trade has been encouraged by: 

  • Trade organisations, such as the World Bank, World Trade Organisations and the OECD - Growth of Free Trade Agreements, such as Australia's free trade agreements with China, Japan and Korea - Industrialisation and specialisation of countries, such as those of Japan post war and China after the introduction of more capitalist policies.

  • Multinational Corporations developing global value chains, that is when components are sourced from multiple locations in multiple countries, assembled in a centralised location - Advancements in technology, such as the internet.

  • Advancements in transport technology, such as more efficient and reliable aeroplanes and cargo ships.

The Global Financial Crisis

It's unsurprising that global trade fell during the GFC (2007-2008) arising from the United States as a result of a housing bubble. Many major economies experienced a recession, resulting in many economies slowing their production of exports and having insufficient income to maintain the level of imports. The recession held a domino like affect, where due to interdependence, the failure of one economy results in other economies failing.

COVID-19 Recession

The COVID-19 pandemic caused a declined in global trade. As flights stopped and businesses closed during lockdowns, money in economies were grounded to halt and dependent on government incentives. Businesses in the airline, tourism, food and beverage, and arts and entertainment were significantly affected as these relied heavily on tourism numbers and offered limited alternatives during lockdowns. However, business confidence is slowly increasing given the upturn in commodity prices, in particular iron ore reaching a peak of $220/tonne, with the mining sector providing economic growth to other sectors of the Australian economy.

World Trade % GDP

Image: Graph of Merchandise Trade as a % of GDP sourced from the World Bank, used under an Open License. 

From the graph above, world trade as a % of GDP tends to follow the overall trends in merchandise trade values. Currently, merchandise trade makes up 42% of the world GDP (recent decline due to COVID-19), a growth of 110% since 1970, when trade only accumulated 20% of world GDP. This shows the overall trend in globalisation, where economies are becoming more integrated and interdependent upon one another. The slowdown of the GFC, which started in the US, decreased world trade by 19%, from almost 52% in 2007 to 42% of the World GDP in 2008. The continuing decline in major economies has evidently seen world trade become sluggish in recent years. If one major economy experiences a slowdown, world trade will also decrease, likely decreasing world economic growth. The recent COVID-19 pandemic has bought to light the significance of global trade and the interdependence of global economies.

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